Market Failure

Topics: Competition law, Externality, Channel Tunnel Pages: 4 (1248 words) Published: March 1, 2013
Hanna Jurkowska
Question 1
Economic inefficiency in the market arises when manufacturers do not supply the required type or quantity of a goods and services on the market which are demanded by consumers and that will lead to Market Failure. We can identify 3 causes of market failure:

1. Restricted Competition – The UK Government investigates and if necessary stops monopolies and mergers, cartels and restrictive trade practice, because good competition between companies (producers) leads to increased efficiency and prices of products are lower. If there is a restriction of competition by monopolies, mergers or restrictive trade practices we can observe that quality of goods and services are poorer, supplies are limited and there are lack of choices, sources are used inefficient and prices are higher.

2. Public goods - Government has to provide public goods and raise revenue from general taxation. The public goods like defence, lighthouse or street lighting are generally provided for all citizens and cannot exclude anyone from their consumption. So each one of these goods and services are used by consumers without diminution amount available to others and also they cannot choose to not consume them. Because it is impossible to exclude individuals or groups of people from the consumption of these goods as a result no one pays for them and producers not receive payment for their productions.

Merit goods – these goods are provided to all inhabitants because this leads to higher standards of living for whole country and labour force will be more effective. Every resident has the opportunity to better educate and be healthier. Government believes is good for consumers but consumers can undervalue these goods and services. If we look at the merit goods on free market economy prospects, where is big difference in income and wealth between citizens. People on higher wage can easily afford them, but the people on lower wage won't. In UK’s mixed economy...
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